Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000

Taxes 101

John BarrickChad Coons

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The hardest thing to understand in the world is the income tax.-- Albert Einstein

The trick is to stop thinking of it as 'your' money.-- Revenue Auditor

Quotable

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Topics

FormsFiling StatusPersonal ExemptionsStandard or Itemized DeductionsSelf-Employment IssuesMulti-State IssuesEarned Income CreditChild CreditEducational Credits/Issues

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Forms

Taxsites.com

Some version of Form 1040 (federal) Utah Any other states where you worked that

have an income tax

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Filing Status

If married on the LAST day of the year. MFJ (married filing joint) rates

If spouse incomes very similar, single rates generate lower tax

If spouse incomes dissimilar, married rates generate lower tax.

MFJ rates apply to Surviving Spousewidow or widower with a dependent child

for 2 more years after death of spouse. MFS (married filing separately) rates are

less favorable. Typically used by separated spouses.

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An unmarried individual not a surviving spouse may file as head of household if they maintain principal residence for a child or other dependent family member.

Single is the default category for unmarried individuals (neither surviving spouse nor head of household).

Filing Status - Unmarried

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Exemptions

Personal exemption for the taxpayer (2 for MFJ).You cannot claim yourself if

someone is claiming you.

Exemption = $3,000 in 2002 for each personal or dependency exemption.

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Tests for Dependency Exemptions

Family member OR live in your home for entire year.

You provide > 1/2 financial supportDependent’s gross income <

exemption amount ($3000)waived for child < 19 OR student-

child<24Dependent may not generally file a

joint return.Dependent must be a U.S. citizen OR

a resident of US, Mexico, Can

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Deductions

You may take the larger of the following:

Standard DeductionEasier and more likely

Itemized DeductionsCharitable contributionsMortgage interestState taxesMedical Expenses

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Standard Deduction

Depends on filing status. For 2002:MFJ = $7,850MFS = $3,925HOH = $6,900Single = $4,700

Blind or aged (>=age 65)MJF, MFS = additional $900HOH or Single = additional $1,150

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Self-Employment Issues

You need to fill out a Schedule C for each separate trade or business

You report the net income here

Income (1099) less expenses

Self-employment taxesBe prepared for bad news

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Expenses

What can I deduct? Travel

Mileage or actual vehicle expensesStandard rate is 36.5 cents per

mileYou should have written proof

Expenses while away from homeMeals (limited to 50%)

Other expensesCopies, Advertising, Rent, Wages

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Multi-State Issues

Have you earned income in more than one state?

Are you a resident of a state other than Utah and earned money in Utah?

States without personal income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming).

You will file as a “resident” in one state and a “non-resident” in the other.

You need to apportion your income between states to avoid paying state income tax twice.

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Continued

Different states do this in different ways. You should do your non-resident form first. Most non-resident states only tax you on

the income earned within that state.You need to determine your other

state liability if any (not the amount you paid in withholding)

Your resident state will likely tax all of your income and give you a credit for tax paid to another state.

Typically, you end up paying taxes at least as high as your resident state.

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SE Taxes

This is the bad news 15.3% of net self-employment income

Note you are paying the employer and employee portion of the tax

You also get a deduction for ½ of tax on Page 1 of your Form 1040 (but remember that the deduction is only saving you a fraction of the whole dollar you are paying).